14 October 2014

Market auction’s pre-qualification stage brings 'surprising consequences’ says LCP energy analytics expert

As the British power market gears up for its first Capacity Market auction in December, the level of competition in the pre-qualification stage is good news for consumers, and also highlights how the process has attracted significant interest in new power station development.

With more generators than predicted participating to provide capacity in 2018/19, high competition for contracts should reduce the auction clearing price and, in turn, minimise the impact on consumer bills. It also puts pressure on existing generators, with a large number likely to miss out in the auction which in some cases could cause forced closures.

LCP partner Tom Porter comments: “This result has brought surprising consequences.  First, the high volume of participants in the auction will mean a more competitive market than many were expecting.  This level of competition is good news for consumers but also creates a huge risk for many existing generators.  Over 5GW of current capacity is set to miss out and face potential closure – that’s almost 10% of the whole UK power market.”

“Secondly, out of over 10GW of new developments that have registered for the auction, the majority (79%) are from outside of the traditional ‘Big 6’ utility companies. This will please those who are looking for more diverse ownership of Britain’s generation fleet.” 

Porter continues: “As the auction draws closer, generators have the tricky task of trying to forecast potential future energy and capacity revenues – even small changes to these forecasts can have a big impact on their bids. They need to make sure they are able to commit to having capacity for the winter of 2018/19, avoiding losses in the intervening years and hoping that any political uncertainty does not have an adverse effect on their plans.”